NEW YORK – Shares of Sallie Mae soared in premarket activity Thursday after the Department of Education selected the student lender and three other companies to service parts of $550 billion in outstanding federal student loans and future loans owned by the government.

The new contract announced Wednesday may help Sallie Mae offset the loss of income if the government, as President Barack Obama wants, stops subsidizing the government-guaranteed loans that make up the bulk of Sallie Mae’s portfolio.

The contract is for the servicing of federal student loans owned by the Department of Education and does not include loan origination. The five-year contract is expected to start in August, according to Sallie Mae. The government may renew it for one five-year term.

Servicing a loan involves the administrative aspect of lending – sending monthly statements, collecting payments and managing delinquencies. Loan servicers are typically compensated by small fees of up to 0.5 percent of loan interest payments.

The government said the minimum contract award for “compliant and performing” lenders is valued at $5 million, with maximum assignments of up to 50 million student borrowers over the five-year contract.

Investors have become concerned about Sallie Mae’s liquidity and funding situation as its loan losses mounted and the Obama administration laid out in its fiscal 2010 budget plans to shift the way students get loans. Rather than subsidizing private lenders, the government would originate all college loans directly.

Under that plan, Sallie Mae’s portfolio would be more reliant on private loans not guaranteed against default by the government.

In its first quarter, Sallie Mae originated a record $6.6 billion of government-backed loans. Private loan originations, which carry higher interest rates, were $1.5 billion.

Sallie Mae has been hurt by rising loan losses. CEO Albert Lord earlier this month that loan charge-offs, which are loans written off as not being repaid, will peak this year and stay high next year.

“As a loan processing company, SLM may generate less net income than as a lender,” wrote William Blair & Co. analyst David Long in a research note earlier this month. If the company converted its entire government-guaranteed loan portfolio into a servicing-only relationship, however, and losses from private loans stabilized, the company could still earn more than $1 per share a year, he said.

Sallie Mae has taken steps to fortify its liquidity position. It said in May that it trust priced $2.6 billion in private loan securities through the Term Asset-Backed Securities Loan Facility, or TALF in May. TALF is the Fed’s program meant to spark lending to consumers and small businesses.

Also named under the contract was Lincoln, Neb.-based student lender NelNet Inc. Its shares climbed $1.33, or 16.3 percent, to $9.47 ahead of Thursday’s market open.